Tango Company began operations on January 1, 2019, suffering a $25,000 loss for that year. There were not permanent or reversing differences in 2019. In 2020, Tango reported a pre-tax accounting loss of $10,000. This amount was after deducting a warranty expense of $100,000 with respect to that year’s sales. Actual expenditures on warranties amounted to $20,000 in 2020. The income tax rate in 2019 and 2020 was 40%.

Required: 

a) Prepare the income tax entries for the two years on the assumption that Tango’s management believed, at the time that the 2019 income statements were finalized, that the loss carry-forward would be fully utilized.

b) Prepare the income tax entries for the two years on the assumption that Tango’s management believed, at the time that the 2019 and 2020 income statements were finalized, that it was not probable that the loss carry-forward would be utilized.